You would think that rich, famous celebrities would take great care of their estate and financial planning affairs, wouldn’t you?

That they couldn’t possibly make the same mistakes as the rest of us common, ordinary folk often do. You would think that, wouldn’t you? But in many cases, you would be wrong.

One of the more recent examples comes from the case of Philip Seymour Hoffman, who tragically passed away in the prime of his career. Analysts are saying that his estate is going to wind up paying between $12 – $15 million dollars in estate taxes. The fact is that it didn’t have to happen. With just a little bit more planning, this result could have been avoided. I know what you’re thinking right now…you might not have that kind of money, so what does this matter to you? But the fact is that even ordinary, middle class people can learn from what Mr. Hoffman did or didn’t do. What am I talking about?

Let’s take a closer look:

1) He Never “Popped the Question”
Hoffman’s will left everything to his long-time girlfriend/partner, who was also the mother of his children. The problem is that he never got around to officially marrying her. And that was a VERY costly move in terms of estate taxes, which happen to provide an unlimited exemption for spouses. At the time of Hoffman’s death, the couple had been together for over ten years , had all three of their children together, and reports are that he treated her “in the same manner as if she were a spouse.” They certainly reached a place at some point in the relationship where they behaved like a married couple. So at some time during the relationship, as the years passed and the estate accumulated, you have to wonder if he might have preferred getting married to leaving so much of his money to the IRS.

2) Not Leaving Money to Charity
Even if Hoffman was adamant against the marriage idea, another option would have been leaving money to charity, to take advantage of the estate tax charitable deduction. We know that there were some charitable causes that he really cared about, such as the arts, culture and architecture, because he said so in his will. With a little bit more planning, he could have re-directed some of his money away from the IRS and directly to these causes, while providing for his girlfriend just the same inheritance. You’d have to think that there’s a good chance he might have preferred that type of outcome, as would a lot of people. Plenty of my clients would rather leave money to their local church than to the IRS.

3) Not Using a Trust for his Children
Here’s something particularly interesting: according to a court document, Hoffman didn’t want his children to become “trust fund kids”…so his solution was to leave everything to their mother instead. Now, a lot of people can sympathize with that feeling. Many parents worry that if their children inherit money, it might negatively impact their motivation to work and/or achieve on their own. They remember how much of their own ambition was driven from having started with little or nothing. And it certainly doesn’t take millions of dollars to have that concern. I’ve talked with many clients who are worried about their children inheriting amounts totaling closer to five or six figures. Unfortunately, now the problem is Hoffman’s children are unprotected. What happens if their mother gets into any legal or financial trouble sometime in the future, whether from a lawsuit, creditor, accident, remarriage, etc.? One example of what Hoffman could have done instead would have been to put some money into a trust for their benefit, but provide that it only be used for the children’s education, or for health expenses, etc. That way, he might have been able to accomplish both objectives, making sure that they still had motivation to work and achieve, but yet were securely provided for as well.

Another advantage of using a trust would have been privacy. Unfortunately his will, which is a public document, was part of the probate process and available for all to see. There are many ordinary, middle class people who are not nearly as wealthy as Hoffman and yet would greatly prefer to keep their final wishes private and away from prying eyes to see.

So, what lessons can you draw from this tragic tale, even if you’re not worth tens of millions of dollars?

Here are a few:

1. Keep your estate planning up to date
The years pass by very quickly, and things can (and often do) change. Births, deaths, divorces, job changes…your estate planning should be reviewed so that it keeps pace with your current circumstances. Otherwise the results could be unpredictable.

2. Don’t make your estate a circus
Don’t create an unnecessary public ordeal for your heirs, with the prying eyes of the public and/or court officials involved in your affairs. With the use of trusts, along with other devices like beneficiary designation forms and transfer on death titles, even with a modest estate you can keep your affairs private and out of the public spotlight. Many people would greatly prefer to have it that way.

If you have questions regarding whether setting up a trust is right for you, don’t hesitate to e-mail me or call me at 440-779-1430, because everyone’s situation is unique.

I’ll leave you with one last bit of good news. While the federal estate tax is still in place, the State of Ohio, which used to have its own additional estate tax, repealed it as of January 1, 2013… so that’s one less thing you’ll have to worry about. Let’s take the good news where we can get it. Until next time, happy planning!

Alex Menassa, MT, CPA

Alex Menassa, MT, CPA is a Senior Financial Advisor at Szarka Financial. Specializing in tax and estate planning issues related to IRAs, Alex is frequently called to speak to employees at some of the area’s largest companies.

In our book, Money Talks: Life Lessons to Help You Plan Now, Save Wisely, and Retire Well, you’ll find many stories of people from all walks of life as they navigate the different stages of life. These stories will help illustrate key aspects of financial planning, showing you what to do—and what not to do—as you go through life.

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